The new Georgia Musical Tax Credit applies to qualifying touring musicals and recorded musical performances. Photo credit: Pixabay https://pixabay.com
After the success of Georgia’s production tax credit, the state enacted a new tax credit to boost the music industry. On January 1, 2018, Georgia’s Musical Tax Credit went into full effect, and the tax credit grants qualifying touring musical or theatrical productions up to a 20% tax credit.
Who qualifies for the musical tax credit?
A touring musical or theatrical production qualifies for the tax credit if the production:
(1) originates and is developed in Georgia and has its initial public performance before a live audience within the state; or (2) if the production has its U.S. debut in the state after preparing and rehearsing for a least seven days within the state.
The tax credit also applies to a recorded musical performance, including, without limitation, the score and musical accompaniment of a motion picture, television, or digital interactive entertainment production.
The Georgia Department of Economic Development defines touring to mean a series of performances, which has a minimum of 12 repeat performances at different locations or venues by the same artist or artists over the course of a 12 month or longer period and the artist must perform at least one performance a month. Recorded musical performances, including film, TV, and video game scores, also qualify for the tax credit if they are produced within the state. However, the same expenses cannot be claimed for both of Georgia’s film and music tax credits – it’s one or the other.
There is a minimum spending requirement in order to qualify for the tax credit. Here’s the breakdown: for musical or theatrical productions the producer must spend more than $500,000 during a taxable year, for recorded musical performances incorporated into a movie, TV show, or video game the producer must spend more than $250,000 during a taxable year, and for any other kind of recorded musical performance the producer must spend more than $100,000 during a taxable year.
Some of the expenditures within the state that qualify for the tax credit include set construction and operation, wardrobe, make-up, accessories, the costs of photography and sound synchronization, lighting, editing, rental of equipment and facilities, payroll, etc. A full list of expenditures that qualify can be found on the Georgia Department of Economic Development’s website.
How does the musical tax credit work?
A production company that meets these requirements can qualify for a 15% tax credit on approved production expenses within the state. An additional 5% can be tacked on to that amount if the production activity takes place within a Tier 1 or Tier 2 Georgia County. Tier 1 and 2 counties are the counties within the state that are in the most economic distress. A full list of the counties that are classified as Tier 1 and 2 is available on the Georgia Department of Community Affair’s webpage. This is good news for musicians in Athens because Clarke County is classified as a Tier 1 county, so Athens musicians can qualify for the additional 5% tax credit.
The tax credit is also good for five years, but it is not transferable or refundable. So you can claim the tax credit on your taxes within five years of earning it. But the tax credit is not transferable, meaning that the credits cannot be sold to another taxpayer who owes the state taxes. The tax credit is also not refundable, meaning that it can only reduce your tax liability to zero.
The tax credit is available until it sunsets, or ceases to have effect, in 2023. The credit is awarded on a first-come, first-served basis and is capped at $5 million for 2018, $10 million for 2019, and $15 million until 2023. This means that the state of Georgia will not provide more than $5 million worth of tax credits to producers in 2018, so to ensure that you get the tax credit you must apply fairly early in the year.
How do I apply for the musical tax credit?
The first thing you have to do is apply for pre-certification with the Department of Economic Development. The production company may be asked to provide budget information, funding sources, production and/or touring schedules, personal information, and whatever else the Department requires in order to ensure that the project qualifies for pre-certification.
Only one production company can apply for the project, so if co-producers are working on a project both companies must provide a written and signed agreement to the Department stating which producer will be applying for the tax credit. Also, a pre-certification application cannot be submitted until the project is fully funded, and the application cannot be submitted more than 90 days before the date of the first public performance or the date of recording.
After getting your letter of pre-certification from the Department of Economic Development, you then have to apply for preapproval with the Georgia Department of Revenue. This step requires submitting a Form IT-MC-AP along with the approved pre-certification letter to the Georgia Tax Center.
With both approvals from the Department of Economic Development and the Department of Revenue you can now apply for certification. The project must get certification from the Department of Economic Development, and certification will not be given unless the project has first been pre-certified. In order to get the credit, the production company must apply for certification within 60 days after completing the project. When the project gets certified, the production company can finally claim the tax credits.
What if the project isn’t approved?
If the per-certification application isn’t approved, then the applicant can appeal the denial. This will require sending a pre-certification appeal letter to the General Counsel of the Georgia Department of Economic Development. If you plan to challenge the denial of your application then it is in your best interest to seek out legal counsel to create an appeal letter for you.
Why should I apply for the musical tax credit?
If you are eligible for the tax credit, then you should definitely apply! The tax credit will reduce your tax liability dollar-for-dollar and could potentially save you thousands or even hundreds of thousands of dollars in taxes. Applying for the credit will pay off in the long run by saving you money, so the headache of applying is definitely worth it.